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OpenMarket: Health and Safety

With the start of the 114th Congress comes a fresh opportunity to address the challenges created by a broken government. To kick off this new congressional session, the Competitive Enterprise Institute (CEI) recommends numerous reform proposals to strengthen the U.S. economy, increase transparency, and foster fair and open competition instead of favoring special interests.

CEI’s top policy proposals center on substantive regulatory reforms needed to improve America’s economic health. In 2014 alone, 3,541 new regulations hit the books, and the burden is constantly growing. If federal regulations were a country, their cost would amount to the world’s 10th largest economy.

In addition to reining in burdensome regulations, CEI recommends that Congress continue to conduct fundamental oversight to protect Americans from executive overreach. Over the last six years, federal agencies have sought to usurp power from the legislative branch. Congress has a responsibility to demand honesty and accountability from our leaders and defend the rule of law.

Today, the Centers for Medicare and Medicaid Services Administrator Marilyn Tavenner and MIT economist Jonathan Gruber are testifying before the House Oversight and Government Reform Committee on repeated transparency failures and enrollment issues surrounding the Affordable Care Act. CEI General Counsel Sam Kazman explains what this hearing could mean for ongoing Obamacare litigation efforts.

“Regardless of what happens at the hearing, Jonathan Gruber has already had a major impact on the ongoing Obamacare litigation, as in CEI’s King v. Burwell and Halbig v. Burwell cases. This is due to both the content of his 2012 video, where Gruber refers to the subsidy issue saying if states don’t set up exchanges then citizens won’t get tax credits, and to how the government dropped nearly all mention of Gruber and his three-legged stool analogy from the court briefs following the video’s rise in popularity.

“And according to a recent CEI report by Scot Vorse, we see that Gruber isn’t the only thing the administration flip-flopped on. Based on a trail of government documents, we find that actions taken by the HHS, Treasury, and IRS to implement the law, especially when it comes to developing a tax-credit calculator, show the administration was only focused on providing subsidies on the state exchanges, not the federal exchange.”

There’s a fascinating story in The New York Times this week about pharmaceutical companies and the process of discovering new drugs. Fifteen years ago, the Cystic Fibrosis Foundation started investing money in a small biotech company to incentivize research into a cure for cystic fibrosis. Their eventual $150 million investment helped Vertex Pharmaceuticals develop a promising new treatment, Kalydeco, which is excellent news for CF patients. It’s also been good for the financial future of the Foundation. They recently signed a deal selling their future royalties on the drug for a one-time payment of $3.3 billion. That’s 20 times the organization’s annual budget.

The Cystic Fibrosis Foundation’s experience with Vertex and Kalydeco will likely prove to be an outlier in terms of ROI, but it does suggest a new option for medical innovation. One longtime model has been for patient advocacy groups to use a significant portion of their budgets to pressure Congress into setting aside more taxpayer money for medical research. This requires them to gamble hard-won donations on the effectiveness of their lobbying strategy and pits them against every other patient and health advocacy group that is angling for their own slice of the federal research budget.

The example of the Cystic Fibrosis Foundation, however, suggests that patient advocacy organizations that invest in R&D directly could not only benefit financially but also see more drugs come on to the market faster. The additional money they end up with could be poured back into more research or used to provide other services to afflicted patients and their families.

Making an end run around the government funding process has another important advantage. Removing the expense of lobbying and the glacial slowness of government bureaucracy brings together the two entities most interested in seeing new treatments become available: the patients who are suffering and the companies that are going to make money by alleviating that suffering.

Patient advocates are in a better position than governmental research funding committees to know what treatment options their members would find most valuable. Being able to negotiate directly with drug companies as investors can give them industry clout and access previous generations would certainly have envied.

One need only look back to the early years of HIV/AIDS activism to be reminded that the political process cannot be relied upon to treat all illnesses or constituent groups equally. To the extent that they can, professionals charged with fighting for the interests of patients should consider going directly to the source for a cure.

The Washington Timespoints out that Jonathan Gruber, our nation’s most famous sufferer of foot-in-mouth-disease, has profited greatly from the “stupid” American public to whom he felt the need to lie in order to pass his health care reform. In an editorial, the paper details the nearly $300,000 paycheck Gruber received from the Department of Health and Human Services to “sing the praises of the health care scheme.”

And that’s not all. Several states—including Minnesota, Wisconsin, Vermont, West Virginia, Maine, Colorado, and Oregon—used Obamacare grants to pay Gruber millions of dollars for his services.

Outrageous? Yes. But should we really be surprised?

The National Institutes of Health (NIH) routinely pays researchers with certain biases to produce “evidence” for positions NIH wants to push on the American public. Essentially, NIH pays to create propaganda with taxpayer money in order to lobby state and federal governments into changing the law as it wants.

For example, Dr. David Jernigan, an admitted “advocate” at the Johns Hopkins Bloomberg School of Public Health, has received upwards of $8 million from NIH since 2009 to produce studies demonstrating the evils of alcohol consumption and marketing (his research has been highly criticized by other public health academics).

Obamacare supporters say that when deciding King v. Burwell and the related Halbig v. Burwell, challenges to the law that the Competitive Enterprise Institute helped fund and coordinate, there is really no need for courts to narrowly confine themselves to the language of specific provisions. Instead, they should look at the broad purposes of the law, as explained by its key architects. But one problem with this approach is these architects of the law—both in Congress and outside—seem to have selective memories about the structure of the Patient Protection and Affordable Care Act of 2010, aka Obamacare

Until very recently, one of the key sources that Obamacare supporters have relied on to establish that purpose are statements and writings by the key architects of the law. For example, MIT Professor Jonathan Gruber’s writings on Obamacare were extensively cited by the government, and by supporting amici, in the early briefs in these cases. In fact, Gruber’s “three-legged stool” metaphor for Obamacare was expressly incorporated into a central portion of the dissent in Halbig, which argued that the Obamacare rule should be upheld.

Gruber was an outside expert who has advised Congress, the Department of Health and Human Services, and many states on the law and its implementation (and has been paid handsomely by taxpayers for much of this advice). In July of this year, Gruber told Chris Matthews of MSNBC that interpreting the law as barring federal subsidies in states that didn’t set up their was “crazy.”

Yet a couple days later, my Competitive Enterprise Institute colleague Ryan Radia—with props to Volokh Conspiracy commenter Rich Weinstein—unearthed a clip of Gruber relaying an audience in 2012 what was basically the same “crazy” interpretation. “If you're a state and you don’t set up an exchange, that means your citizens don't get their tax credits,” Gruber said.

Gruber responded that this was a “speak-o,” a speaking version of a typo. But since then, many more speak-os of Gruber have surfaced, suggesting that he has a condition that could be called the “Speakola virus.”

It was very good news, delivered in a very surprising way. Shortly after noon last Friday, the Supreme Court announced that it would review our Fourth Circuit Obamacare challenge, King v. Burwell.

Ever since we filed the case with the Supreme Court this past July, we’d been hopeful that the Court would take the case. The likelihood of the Court accepting any case is extremely low, but there were several major factors in our favor.

First, the question involved is extremely important to millions of Americans, be they taxpayers, health insurance policyholders, or workers. (In most cases, they’ll be all three.) The issue is whether Obamacare health insurance subsidies are available nationwide, as the White House claims, or whether they are limited to the minority of states that have set up their own insurance exchanges, as indicated by the language of the statute. Riding on this issue are billions of dollars in taxpayer funds, insurance choices made by millions of individuals and hundreds of thousands of employers, and the huge penalties that such subsidies can trigger for companies in nonparticipating states.

Second, only the Supreme Court could resolve the issue both quickly and definitively. True, the companion case that we had won, Halbig v. Burwell, is now up before the D.C. Circuit for en banc review; the government argued that the Supreme Court should wait for the en banc circuit ruling because it might eliminate the need for any Supreme Court action whatsoever. But even if that court were to overturn the Halbig panel’s ruling, there would still be ongoing challenges in other circuits. Oklahoma’s victory on the issue is now on expedited appeal in the Tenth Circuit, and Indiana just argued its challenge in district court in the Seventh Circuit. In short, while the lack of a split between the D.C. and Fourth Circuits might remove one technical reason for Supreme Court review, it might well do so only temporarily, and Supreme Court inaction at this point would only prolong the uncertainty and multiply the impact of an adverse ruling.

The Obamacare insurance exchange rule is being challenged in four cases, and each one of them has been active over the last two weeks. The IRS rule puts the Obamacare insurance subsidies, and their attendant penalties, into effect nationwide. CEI is involved in two of these cases: King v. Burwell, which we lost in the Fourth Circuit, and Halbig v. Burwell, which we won in a 2-1 D.C. Circuit panel ruling. We argue that this is contrary to the underlying statute, which provides for such subsidies only in states that have chosen to set up their own exchanges—a choice that 34 states have declined.

The King plaintiffs have petitioned the Supreme Court to review the Fourth Circuit’s ruling, which upheld the IRS rule. Last Friday the federal government filed its opposition to that request. Its arguments were relatively predictable, with one exception that we’ll get to later.

In the D.C. Circuit, Halbig is now on en banc review, with argument before the full 13-judge court scheduled for December 17. Our opening en banc brief, together with six supporting amici, was also filed last Friday.

Last Tuesday, September 30, there was a third court ruling—Oklahoma won its own challenge to the IRS rule in the Eastern District of Oklahoma. That court did an excellent critique of the dissent in Halbig, and it was also noteworthy for issuing the first “post-Gruber” ruling—that is, the first court decision to consider the recently-unearthed 2012 video that showed MIT Professor Jonathan Gruber, one of Obamacare’s chief architects, directly contradicting his current attack on our position. The video shows him flatly stating that nonparticipating states would not receive subsidies, in stunning contrast to the more recent claims, by Gruber and others, that our legal position is “crazy.” (CEI, by the way, is proud to have helped launch that video into Internet stardom just two days after the Halbig and King decisions.)

​The Obama administration has claimed that despite recurring language in the Obamacare law limiting tax credits to people who buy insurance on an “exchange established by the state,” such taxpayer subsidies are also available to people who buy insurance on the federal exchange, Healthcare.gov. (The availability of tax credits triggers employer mandates and penalties in any state where the tax credits are available, and the tax credits contain work disincentives and marriage penalties, so the tax credits are not a free lunch.)

Architects of Obamacare like Jonathan Gruber have argued that it is “nutty” to argue that Congress intended to limit tax credits to state exchanges. But this supposedly “nutty” view was once the view of Gruber himself – and, apparently, the federal government itself. When the Department of Health & Human Services issued a contract to create a federal exchange in 2011, the contract assumed tax credits didn’t apply to the federal exchange. (The original contract did not include any functions to allow purchasers to calculate their tax credits, or factor in tax credits before displaying health-insurance prices, and the contract was not amended to apply tax credits to the federal exchange until much, much later.)

Back in 2012, Gruber had himself admitted tax credits were not available on the federal exchange, contradicting his later statements. A 2012 video caught “Obamacare architect Jonathan Gruber saying, ‘If you're a state and you don't set up an exchange, that means your citizens don't get their tax credits.’” In July 2013, that video was “nationally-publicized due to the efforts of CEI’s Ryan Radia,” who helped expose Gruber’s two-faced turnabout. (“The Wall Street Journal, Bloomberg, Forbes, New Republic, Slate and others carried stories” due to Radia, noted the Des Moines Register.)

Gruber claimed that what he earlier said on the video was just a slip-of-the-tongue—a “speak-o” equivalent to a typo—but it turned out that he publicly made the same exact admission on at least one other occasion in 2012, before that admission became politically inconvenient.

As Forbes Magazine noted, “the irony is that” by 2013, “Gruber was deriding as ‘nutty’ and ‘stupid’ the contention that the Affordable Care Act required subsidies to flow through state-based exchange,” the very contention he himself made back in 2012. “It’s a ‘screwy interpretation’ of Obamacare, alleged Gruber in an interview with Erika Eichelberger of Mother Jones . . . ‘It’s nutty. It’s stupid… it’s essentially unprecedented in our democracy.’” Less than a week before his video was unearthed, “Gruber was on MSNBC’s Hardball,” where he proclaimed the “criminality” of those who argue tax credits are limited state-based exchanges.

But as Scot Vorse discovered, the government itself once recognized that credits are limited to state-based exchanges. In light of that discovery, CEI has submitted two FOIA requests, one to HHS headquarters, and one to the Centers for Medicaid & Medicare Services, seeking additional information relevant to the government’s about-face.

This week, an unprecedented circuit split emerged in Halbig v. Burwell and King v. Burwell over whether health insurance premium assistance is available in states that didn’t set up health insurance exchanges. Many commentators have since claimed that there’s no way Congress intended to deny premium assistance to residents of the 36 so-called “refusenik” states that have not set up their own health insurance exchanges.

But in January 2012, Jonathan Gruber—an MIT economics professor whom the The New York Times has called “Mr. Mandate” for his pivotal role in helping the Obama administration and Congress draft the Affordable Care Act—told an audience at Noblis that:

What’s important to remember politically about this is if you're a state and you don’t set up an exchange, that means your citizens don't get their tax credits—but your citizens still pay the taxes that support this bill. So you’re essentially saying [to] your citizens you’re going to pay all the taxes to help all the other states in the country. I hope that that's a blatant enough political reality that states will get their act together and realize there are billions of dollars at stake here in setting up these exchanges. But, you know, once again the politics can get ugly around this.

General Counsel Sam Kazman talks about what the Halbig decision means for the Affordable Care Act, as well as broader principles such as taxation without representation and the rule of law. Click here to listen.